The Pros and Cons of Hiring Using an Employee Referral Program 

News and insights for job seekers and hiring managers.

The Pros and Cons of Hiring Using an Employee Referral Program 

Employee referrals are a tried-and-true hiring method for many employers. After all, what better source is there for new hires than current employees. Typically, your employees are invested in the success of both the company and the new hire. Employees know that the colleagues they refer will reflect on them, whether that’s in a positive or negative way. Employee referral programs appear at first glance to be a win-win-win, meaning there are advantages to employee referrals for the employer, the new hire, and the current employee. But is that always the case? Let’s explore the pros and cons of employee referrals. 

The Pros of Employee Referrals  

One advantage of employee referrals is that, at least in theory, your current employee is unlikely to refer someone they don’t think will do an excellent job. It will reflect on them and they may be required to work directly with the new hire they referred. Nobody wants to bring in a new hire who won’t be up to the current team’s standard. It will just make their own job more difficult. 

Employees who refer friends may be even further invested in your company and company culture than they were before. For example, suppose they are interested in bringing on a friend to work at the company. In that case, they must present your management style, your culture, your work ethic in a positive manner to encourage the best people to come over. It can inspire the referred candidate to apply and remind your current employee why your organization is a great place to work. 

More Advantages of Employee Referrals  

Employees market your company.

An attractive employee referral program can give you a consistent pipeline of new prospects. Current employees will be interested in keeping an eye out for friends or professional colleagues who would make a great addition to the team. They’re like a walking advertisement for why your company is a great place to work. 

You can spend less on job advertising.

A strong candidate referral program is a lot less expensive than posting jobs to major job boards. Even a modest referral bonus can motivate employees to think of people to refer. Most likely, the cost will be just a fraction of your typical spend. 

It’s your inside track to passive candidates.

Often, the best people are currently working – maybe for your competitor. Suggest that employees reach out to their currently employed friends, not just the ones looking for work. If you have a “dream candidate” you haven’t been able to attract, check out LinkedIn or other social media to see if they are connected to any of your employees. Ask them to introduce you and offer a referral bonus for a successful hire. Your current employees may be your best resource when it comes to connecting with tough-to-reach talent.  

Shorten your time to hire.

While referred candidates should undergo the same interviewing and screening process that any candidate would. But it can eliminate a few steps in the hiring process. You won’t need to post the open positions, conduct a search, or sort stacks of resumes. This can save you a lot of time you would otherwise spend on the screening program. 

Improve retention.

Referred candidates tend to fit nicely into your organization because they have connections with an existing employee. When you hire for fit as well as skills, employees are usually more engaged and tend to stay longer. Keeping turnover rates low can save time and money as well as maintaining morale. 

The Cons of Employee Referrals  

For many companies, turning to their current employees as a source of new candidates is their first instinct. The assumption is that an employee referral program is a good hiring strategy, but that’s not always the case. On the one hand, it seems that you’re getting reliable employees who are of the same caliber as your current employees. But at the same time, they may be too much like your current employees. It can be hard to build a diverse workforce when you’re hiring people who are just like your present workers. 

For example, you may have heard reports of large tech companies attempting to use AI to recruit engineers. Because their current engineering staff was predominantly male, Amazon’s AI thought engineers were men and prioritized resume language typically used by men while downgrading resumes with traditional women’s names or colleges. Amazon had to cancel the program because they couldn’t get the software to unlearn it. 

What does AI have to do with referrals, you may ask? The mind can subconsciously work the same way. If most of your mechanics are men or project managers are women, that might be who employees picture when trying to think of people to recommend. It may not occur to an employee that their niece is forklift certified, meaning you could miss out on a great addition to your team. 

While they can be a valuable part of your hiring arsenal, there are disadvantages of employee referrals. 

Lack of Diversity is a Problem 

People talk about diversity and might even be putting a lot of effort into building a diverse workforce. But an employee referral program can cause an unexpected gap and can even interfere with hiring diversity. Someone who works at your company is likely to have friends of similar ethnicity, experience, work ethic, which is fine if you want to add more people of that exact nature. If your current employees are mainly of the same demographic, their professional network is likely to be similar. That can be a significant stumbling block in building a diverse talent pool. 

This diversity issue doesn’t go just to demographics.

For example, if your current team brings similar skills and experience to the table, their network may be made up mostly of like-minded individuals. For example, engineers are likely to know other engineers – at least in their professional networks. But what if you’re short-staffed on skilled laborers? While your engineers might be eager to help, they simply don’t have the network resources to help you find the people you need. 

Employees can develop an us vs. them mentality. 

“You can’t sit with us” is a high school trope, but that same kind of exclusionary behavior can exist in work environments as well. New employees hired through employee referral are likely to associate primarily with the people they know. This is natural, but if you get several referrals from the same individuals, it can get out of hand.  

Other employees can feel excluded or suspect favoritism. 

Be sure you understand the nature of the employee/referee relationship. If they were coworkers at a former employee, it’s probably no problem for them to work side-by-side. If employees are referring family members, that may be fine as well as long as it’s not against policy, but be careful to avoid direct-report relationships, or you may face accusations of nepotism. Cliquishness can damage morale, and you can suffer attrition, which is the last unintended consequence you want to encounter from your employee referral program. 

You’re not always getting the strongest candidates

It’s possible an employee is referring his friend because he’s been out of work for a while, and he feels sorry for him. Or maybe he doesn’t know the candidate on a professional basis, just as someone who’s fun to have a couple of beers with. He figures they can have some laughs on the job. This might be great for them, but probably not for the company or the morale of other employees. 

Referred employees deserve a chance, not a job. 

Bias can make hiring managers take it easy on the candidate, which can cause problems in the long run. Managers can be tempted to shortcut the interview and screening process. Too often, managers think well if Joe from accounting thinks his referral will fit the position, that’s good enough for them and fail to hold the referred candidate to as rigorous a standard as typical candidates are. 

We Can Help You Make the Most of Your Referral Program

If you want to make the most out of your employee referral program, consider both the strengths and weaknesses of hiring with referrals and set your program up accordingly. If you need to bolster your referral program with other recruitment strategies, talk to the staffing specialists of Top Notch Personnel. Contact us today to learn more about our staffing solutions in Wichita, KS!  

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